Wireless Boom Hits Hinterlands

Smaller cell-phone company stocks like Ubiquitel ( UPCS) and the aptly named Rural Cellular ( RCCC) added as much as 10% Thursday as consolidation came calling in the wireless hinterlands.

The mobile phone hoedown started after reports emerged that Little Rock, Ark., telco Alltel ( AT) and Western Wireless ( WWCA) are discussing a union.

Western Wireless, based in Bellevue, Wash., has about 1 million subscribers in the Northwest. Alltel is the nation's No. 6 wireless shop and also has about 13 million local phone customers.

"I'm not sure this deal is all that big," says Lehman Brothers analyst Blake Bath. But given the growth and cash generation happening in wireless, says Bath, "you will see more of this. People want to be in wireless."

So do investors, it seems.

Western Wireless has jumped 70% since April and was up $4.48, or 15%, to $35.48 in midday trading Thursday. And outfits like Ubiquitel and Rural Cellular were up 3% and 9%, respectively. Alltel was the lone holdout, dropping 4% on fears of a costly acquisition.

The rural wireless sector began to catch on early last year as an investment theme, as Wall Street looked for more so-called pure-play cellular names. Big players like Cingular and Verizon Wireless are locked inside partnerships involving old-line wireline telcos, while Sprint ( FON) pulled in its wireless tracking stock last year.

That left Nextel ( NXTL) as the sole national wireless stock. Of course, last month it agreed to merge with Sprint. Meanwhile, the dealmaking desire spread to the sticks as a pair of Sprint affiliates -- Alamosa ( APCS) and AirGate ( PCSA) -- agreed to join last month.

While the business logic of trying to combine wireless operations in far-flung regions is not exactly obvious, some say it is the most appealing option currently available to deal-hungry executives.

You have a couple choices if you are running a telco, says one industry observer. You can go it alone by managing the business as it is and funneling your cash into dividends. Or, you can use the cash for acquisitions to make the business grow.